CorpTax-Slides for Chapter 4.f13

318a3 from b to x and owns 318a2 from x to a and this

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: n—§ 318 (a)(5)(C) (Cont’d) Example: A B 50% 50% X 100% Y 17 Prohibited Attribution—§ 318 (a)(5)(C) (Cont’d) X owns in Y—100% (§ 318(a)(3)) A owns in Y—0% (§ 318(a)(3) from B to X and owns § 318(a)(2) from X to A and this is prohibited) 318(a)(2) 18 § 302 Tests § 302 (b)(1)—not essentially equivalent to a dividend Some reduction in stock ownership Not in control of the corporation after the transaction 19 § 302 Tests (Cont’d) § 302 (b)(2)—substantially disproportionate 302 redemption redemption 50% test—immediately after the redemption, the 50% shareholder owns less than 50% of the voting stock, shareholder AND 80% test—immediately after the redemption, the 80% shareholder owns a percentage of stock which is less than 80% of his percentage of stock immediately before the redemption (based on both voting power and value) both 20 § 302 Tests (Cont’d) A B 40 60 X Example 1: X Corporation redeems 10 shares from A Example 2: X Corporation redeems 25 shares from A Example 3: X Corporation redeems 10 shares from B 21 § 302 Tests (Cont’d) Example 1 A owns in X before 60/100 = 60% A owns in X after 50/90 = 56% Therefore, A fails the § 302(b)(2) 50% test Example 2 A owns in X before 60/100 = 60% A owns in X after 35/75 = 46%. Therefore, A passes the § 302(b)(2) 50% owns test test 46%/60% = 76%. Therefore, A passes the § 302(b)(2) 80% test Example 3 B owns in X before 40/100 = 40% B owns in X after 30/90 = 33%. Therefore, B passes the § 302(b)(2) 50% owns test test 33%/40% = 83%. Therefore, B fails the § 302(b)(2) 80% test However B would pass the § 302(b)(1) test Some reduction 40% to 33% No control after the redemption. A controls X 22 § 302 Tests (Cont’d) § 302 (b)(3)—termination of shareholders interest Waiver of family attribution rule requirements 1. No interest retained in the corporation other than an 1. interest as a creditor interest 2. No acquisition of prohibited interest within 10 years of 2. redemption redemption 3. Agree to notify IRS of acquisition of prohibited interest 3. within the 10-year period within 23 § 302 Tests (Cont’d) § 302 (b)(4)—partial liquidation for non-corporate 302 shareholders shareholders “§355” test “Not essentially equivalent to a dividend” test Not 24 End of Chapter 4 Slides Any Questions on End-of-Chapter Questions or Problems? Questions 25...
View Full Document

Ask a homework question - tutors are online